Euro Still Climbing
The euro’s rebound continued during the Asia session, buoyed by yesterday’s rally across Eurozone sovereign bond markets. EURUSD traded 1.2807-1.2873, USDJPY traded 76.69-76.84. Strong demand at Thursday’s Spanish auction has raised hopes for a positive outcome when Italy tries to sell EUR3-4.75 bn of BTPs today. Our Eurozone rates strategy colleagues expect the relatively small amount of supply to be easily absorbed, which we expect will give the euro a short-term boost. However, they doubt the performance of Italian debt will be as impressive today as it was yesterday. Even though fundamentals have not budged by one inch for the Eurozone, it appears that there is demand out there for sovereign paper. Spain’s Tesoro sold almost EUR10 bn across three lines, double the guidance and over 10% this year’s planned issuance. The ECB left interest rates unchanged yesterday, and President Draghi sounded the expected warning bells over the Eurozone economy, but said that there were some ‘signs of stabilisation’, albeit at very low levels. The ECB was also non-committal on future policy moves, and on the SMP programme, but it appears current market conditions did not warrant a very dovish stance. However, this does not change our bearish outlook on the euro, and we remain short EURUSD as a trade recommendation. In the US, however, retail sales surprised to the downside as core figures fell by 0.2% (cons. 0.3%). The December budget deficit was also higher than expected at -$86bn (cons. -$83.7bn). Trade figures are due out in the US and Canada, along with the University of Michigan Confidence reading.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank